New Listing

BlackRock launches PEA-eligible version of global synthetic ETF

Tax efficient for French savers

Theo Andrew

France flag Paris

BlackRock is targeting French investors with a tax-efficient version of its recently launched synthetic global equity ETF.

The iShares MSCI World Swap PEA UCITS ETF (WPEA) is listed on the Euronext Paris with a total expense ratio (TER) of 0.25%.

WPEA tracks the MSCI World Net TR Eur index, a euro-denominated version of the index tracked by the iShares MSCI World Swap UCITS ETF (IWDS), which launched last month.

BlackRock said the ETF was designed to be eligible for the Plan d’Epargne en Actions (PEA), a regulated savings plan similar to an ISA in the UK.

Investors who hold investments in a PEA for longer than five years do not pay capital gains tax while earned income is also free.

To be eligible for PEA, an ETF must invest in European indices, track an index composed of at least 75% of companies headquartered in Europe or be synthetically replicated.

Similar to its non-PEA counterpart, WPEA offers exposure to 1,480 equities across 23 developed market countries.

It operates an unfunded swap model where a counterparty pays the index total return in exchange for a swap fee.

WPEA's collateral basket invests in a minimum of 80% European Economic Area (EEA), making it PEA eligible.

The ETF has a weighted average swap fee of three basis points (bps) versus 12.5bps for IWDS.

BlackRock said WPEA said investors will be able to purchase WPEA from €5 and will be available from "leading distributors of savings products".

It takes the US asset manager's PEA-eligible ETFs to 21, in addition to one exchange-traded commodity (ETC).

Amundi also has a PEA-eligible global equity ETF. The $4.3bn Amundi MSCI World III UCITS ETF (AHYQ) is also synthetically replicated with a TER of 0.20%.

Synthetic ETFs, such as WPEA, have a performance advantage over physical ETFs when offering exposure to US equities. WPEA currently has a 71% weighting to the US.

They do not pay withholding tax on dividends as the substitute basket of the ETF is restricted to non-dividend paying stocks.

US equity dividends from physical ETFs domiciled in Ireland are subject to 15% tax while other jurisdictions such as Luxembourg pay 30% tax.

As a result, a synthetic global ETF will deliver an annual tracking difference of 0.33% versus 0.46% and 0.61% for physical ETFs domiciled in Ireland and Luxembourg, respectively, according to BlackRock.

Invesco and DWS also have synthetic global equity ETFs, the $4.7bn Invesco MSCI World UCITS ETF (MXWS) which has a TER of 0.19% while the $6bn Xtrackers MSCI World Swap UCITS ETF (XMWO) carries a fee of 0.45%.

The launch highlights BlackRock’s U-turn towards synthetic ETFs. WPEA represents BlackRock’s fourth synthetic ETF, following the launch of the iShares MSCI USA Swap UCITS ETF (MUSA) and the iShares S&P 500 Swap UCITS ETF (I500).

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